Go Airlines | NCLAT Upholds Initiation Of Insolvency Proceedings, Aircrafts To Remain In Possession Of Go Airlines

The Bench has rejected an appeal filed by the Lessors challenging the NCLT’s direction to keep the leased aircrafts intact in the possession of Go Airlines. Since the Lessors had challenged the imposition of moratorium on leased aircrafts (third party assets) when the lease agreement stood terminated prior to CIRP, the NCLAT has granted liberty to IRP and the Lessors to file application(s) before the NCLT with respect to their claims relating to the leased aircrafts.

Background Facts

M/s Go Airlines (India) Limited (“Corporate Applicant/Corporate Debtor”) is engaged in the business of Airlines and is the third largest airline operator in India. It has been running a low-cost Airline service under the brand name ‘Go Air’ for the past 17 years and holds license issued by the Directorate General of Civil Aviation (DGCA) for carrying out commercial air operations in India. In May 2021, GoAir was renamed as ‘GoFirst’. The Corporate Debtor has an employee strength of about 7000 direct and 10,000 indirect employees. Moreover, it serves critical airports such as Leh & Port Blair and is the largest operator in Jammu & Kashmir.

Pratt & Whitney (“P&W”) had supplied defective engines to the Corporate Debtor due to which the latter’s several aircrafts were grounded and could not take off. &W declined to provide any repair or replacement to the Corporate Debtor. The matter was referred to an emergency arbitration before the Singapore International Arbitration Centre (SIAC), wherein the Emergency Arbitrator passed Awards dated 03.02.2023 and 15.04.2023, directing P&W to supply 10 serviceable engines by 27.04.2023 and 10 serviceable engines each month till December 2023. However, the Awards were not complied with by P&W and enforcement proceedings are pending adjudication.

For this reason, the Corporate Debtor was constrained to cancel 4,118 flights with 77,500 passengers in the last thirty days. The Corporate Debtor filed a petition under Section 10 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), voluntarily seeking initiation of the Corporate Insolvency Resolution Process (“CIRP”) against itself. On 02.05.2023, the DGCA issued a Show Cause Notice to the Corporate Debtor on the issue of cancellation of flights scheduled on 03.05.2023 and 04.05.2023.

Proceedings before NCLT

The NCLT Bench observed that the existence of debt and default being proved; the petition being complete in terms of Sections 10(2) and 10(3) of IBC; and the Corporate Debtor/Corporate Applicant not being ineligible under Section 11 of IBC, the petition is liable to be admitted. Accordingly, on 10.05.2023 the petition under Section 10 of IBC got admitted and CIRP was initiated against the Corporate Debtor. Mr. Abhilash Lal has been appointed as the Interim Resolution Professional (“IRP”). While imposing Moratorium under Section 14 of IBC, the NCLT specifically stayed the recovery of any property by an owner or lessor, where such property is occupied by or in the possession of the Corporate Debtor.

Further, the Bench gave the following directions on the issue of retrenchment of employees:

“(c) The IRP also shall ensure that retrenchment of employees is not resorted to as a matter of course. In any event, any such decision/event should be brought to the attention of this Adjudicating Authority.”

The Suspended Board of Directors and Ex-Management of the Corporate Debtor were also directed to extend all necessary cooperation to the IRP to maintain the status of Corporate Debtor as a “a going concern” and running its operations/services smoothly.

NCLAT Verdict

SMBC Aviation Capital Ltd, GY Aviation and SFV Aircraft Holdings (“Lessors”) had leased out aircrafts to the Corporate Debtor. The Lessors filed an appeal before the NCLAT challenging the NCLT order dated 10.05.2023, since the Order restricted the Lessors from recovering their assets (aircrafts) which are in possession of the Corporate Debtor.

The Lessors submitted that they had terminated the Lease Agreement of aircrafts prior to initiation of CIRP and imposition of moratorium. The assets belonging to third parties could not be covered under moratorium and must be reverted to the Lessors.

The NCLAT upheld the NCLT order initiating CIRP against the Corporate Debtor. However, liberty has been granted to the IRP and the Lessors to file application(s) before the NCLT with respect to their claims relating to the leased aircrafts. The following liberties have been granted:

“(3) The Appellant(s) as well as IRP are at liberty to make appropriate Application before the Adjudicating Authority for declaration with regard to applicability of the moratorium on the aircrafts with regard to which Leases in favour of the Corporate Applicant were terminated prior to admission of Section 10 Application, which Application need to be considered and decided by the Adjudicating Authority in accordance with law.

(4) The Appellant(s) and the IRP are also at liberty to make an appropriate Application under Section 60, sub-section (5) with regard to claim of possession and other respective claims of both the parties relating to the aircrafts in question, which need to be decided by the Adjudicating Authority in accordance with law”, the Bench directed.”

The appeal has been disposed of.

Case Title: SMBC Aviation Capital Ltd. Vs. Interim Resolution Professional of Go Airlines (India) Ltd.

Case No.: Comp. App. (AT) (Ins) No. 593 of 2023

Counsel for Appellants: Mr. Arun Kathpalia, Mr. Krishnendu Datta & Mr. Sathvik Varma, Sr. Advocates, Mr. Abhijeet Sinha, Mr. Pranaya Goyal, Ms. Marylou Bilawala, Ms. Sharleen Lobo, Mr. Dhruv Khanna, Mr. Chiranjivi Sharma, Ms. Apoorva Kaushik, Ms. Neetika Sharma, Mr. Girish Shankar, Mr. Kshitij Wadhwa, Mr. Aditya dhupar, Mr. Palash Singhvi, Mr. Ankit Garg, Mr. R. Taneja, Advocates. Mr. Rajshekhar Rao, Sr. Advocate with Mr. Anandh Venkataramani, Mr. Saket Satapathy, Mr. Anubhav Dutta, Mr. Zashank Mehta, Mr. J. Shivam Kumar and Mr. Siddhant Kumar Singh, Advocates

Counsel for Respondents: Mr. Ramji Srinivasan & Mr. Ritin Rai, Sr. Advocates with Ms. Shruti Pandey, Ms. Namrata Saraogi, Mr. Ramakant Rai, Mr. Siddharth Ranate, Mr. Varun Kr. Tikmani, Mr. Somesh Srivastava, Ms. Dhristi Kaushik, Mr. Ravin Kapur, Advocates for IRP. Mr. Maninder Singh & Mr. P. Nagesh, Sr. Advocates, Mr. Diwakar Maheshwari, Mr. Pranjal Kishore, Mr. Shreyas Edupuganti, Mr. Shouryaditya, Mr. Suhas Puthige, Ms. Pratiksha Mishra, Advocates for suspended BOD.

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